EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

Complete Warehouse Tax-Enhanced Energy-Efficient Design

Warehouses are becoming the break out category for tax enhanced energy
efficient design. Warehouses are taking the lead in energy efficient design
because they are large simple spaces where large energy and tax savings is
easily achievable by installing current generation building products. Moreover
the largest concentrations of large warehouses support nearby major population
centers where electricity is often supply constrained and expensive which
greatly increases the economic return from energy efficiency measures.

The EPAct Tax Opportunity

If the building project doesn't qualify for the maximum $1.80 per square
foot immediate tax deduction, there are tax deductions of up to 60 cents per
square foot for each of the three major building subsystems: lighting, HVAC and
the building envelope. The building envelope is every item on the
building’s exterior perimeter that touches the outside world including
roof, walls, insulation, doors, windows and foundation.

Warehouses that combine energy efficient lighting and heating have become by
far the largest category of buildings qualifying for the $1.20 to $1.80 EPAct
tax deductions. The following table illustrates the magnitude of potential
EPAct tax benefits available at various square footage's:

Lighting

Building lighting comprises a large portion of warehouse energy use. Most
warehouses that have not had a lighting upgrade to energy efficient lighting in
the last 7 or 8 years utilize prior generation metal halide or T-12 fluorescent
lighting. It is also important to realize that effective January 1, 2009 most
probe-start metal halide lighting may no longer be manufactured or imported
into the United States and effective July 1, 2010; most T-12 lighting may no
longer be manufactured or imported into the United States. This means that
warehouses that still have this lighting technology will soon be subject to
large price increases for replacement lamps and bulbs.

This prior generation T12 and metal halide lighting is very energy
inefficient compared to today's T-8 and T-5 lighting, and a lighting retrofit
can easily reduce lighting electricity costs by 40 to 60 percent. In addition
to large energy cost reduction from the base building lighting, most warehouses
undergoing lighting retrofits install sensors that completely shut off the
lighting in portions of the warehouse that are not in use. Previously, many
warehouse owners and lighting specifiers were reluctant to install sensors
because they reduced fluorescent lamp useful life. Today, improved technology
sensors are available with warrantees not to reduce lamp useful life.

If feasible the warehouse heater should be mounted on an exterior wall to
optimize the roof top solar P.V. space.

An example illustrating the maximum utilization of the $1.20 EPAct tax
deduction for a 100,000 sq ft warehouse with an energy efficient heater is as
follows:

With this example, the $120,000 (100,000 sq ft x $1.20) entire investment
EPAct tax deduction will be achieved as long as the combined lighting heater
project reduces total energy cost by 33 1/3% as compared to ASHRAE 2001.

Building Envelope

If a warehouse requires reroofing this owner should consider a more energy
efficient white roof. Moreover, when reroofing this is the ideal time to
consider adding more insulation. If the building already had an energy
efficient design and roof the owner may want to consider upgrading to more
energy efficient truck bay doors and windows.

With this example the maximum $180,000 EPAct tax deduction (100,000 sq ft x
$1.80) will be available as long as the combined lighting, heater and roof
project reduces total energy cost by at least 50% as compared to ASHRAE
2001.

Solar P.V.

Solar P.V. rooftop systems are used to generate electricity at warehouses.
Warehouses typically make ideal solar installation candidates since they often
have large, unobstructed flat roofs. Large roofs enable large P.V. systems that
generate more electricity. Solar P.V. installations are entitled to 30% tax
credit or now for the first time a 30% grant . When using either the credit or
the grant, five years MACRS deprecation is available. Often tax equity partners
will be willing to make the investment for a rooftop warehouse solar
installation and enter into a power purchase agreement where the warehouse
operator post-installation will purchase its electricity at an agreed price for
a fixed period of time, usually 15 to 20 years. The tax equity partner will use
a combination of the power purchase agreement annual revenue, the tax credit or
grant, utility rebates if available, green tag emission payments and net
metering electricity payments for selling the excess power back to the grid to
generate an acceptable economic return. With a power purchase agreement, a
warehouse is essentially renting its roof as an alternate energy electrical
generator.

6. Determine tax incentives including EPAct tax deduction benefit and solar
credit tax deductions. EPAct will be based on total project square footage,
including mezzanines and pick and pack modules. The 30% solar tax credit will
be based on the combined solar material and installation costs.

12. Reduce Federal and State estimated tax payments for large tax deductions
and credits.

13. Celebrate tax enhanced energy efficient warehouse achievement.

Conclusion

As described above there are multiple compelling reasons including energy
and substantial tax savings why warehouses are becoming the breakout energy
efficiency project building category. This is such a widespread phenomenon that
market forces will require warehouse landlords to upgrade just to remain
competitive. Once the overwhelming majority of warehouses are upgraded
America's building products community will undoubtedly turn their attention to
the next major building category requiring improvement which may very well be
the office building you are sitting in.

Charles Goulding, Attorney/CPA is the President of Energy Tax Savers, Inc.,
an interdisciplinary tax and engineering firm that specializes in the
energy-efficient aspects of buildings.